Royal Dutch Shell has reported an almost 50 per cent drop in fourth-quarter profits, forcing the energy major to slow the pace of its share buyback programme and risk missing its 2020 completion target for investor payouts.

Lower oil and gas prices, weaker refining and chemicals margins, “challenging” economic conditions and a series of one-off factors led the Anglo-Dutch group to report worse than expected earnings on Thursday.

Shell said net income adjusted for cost of supply — its preferred profit measure — dropped to $2.9bn in the three months to December 31. This compared with $5.7bn in the same period the previous year. Analysts had forecast $3.2bn.

Full-year earnings for 2019 were 23 per cent lower at $16.5bn.

Shell said that it would slow investor payouts dramatically and planned to buy back $1bn of shares between now and April 27, compared with $2.8bn in the fourth quarter of 2019.

The news sent shares down 3 per cent in London trading to a near three-year low.

In 2018 the group launched a $25bn buyback programme, which it had promised after its $54bn acquisition of BG Group in 2016 with a plan to complete it by the end of 2020.

Column chart of Amount ($bn) showing Shell buyback volumes

Stuart Joyner, analyst at Redburn, said: “It now looks extremely challenging to complete the buyback programme by the end of year as planned.”

While Shell has completed $15bn worth of share repurchases, chief executive Ben van Beurden said the pace of the buyback programme was subject to economic conditions and debt reduction plans.

“It is essential to have a resilient balance sheet to manage the kind of volatility we are seeing at the moment,” he added.

The group’s exploration and production division reported a loss of $787m, compared with a profit of $1.6bn in the same quarter a year ago, because of lower oil prices, decommissioning costs, tax charges and write-offs related to its business in Albania. 

The refining and chemicals business reported earnings down 64 per cent to just over $1bn as weaker margins hit profits after Shell had warned they would be “materially lower” amid a weaker global economy. 

Earnings at Shell’s gas business fell 47 per cent to $1.9bn after higher trading activity failed to offset lower prices. 

Cash flow from operations fell 53 per cent to $10.3bn in the fourth quarter compared with the year before. Free cash flow, which enables the company to pay for dividends and share buybacks, dropped to $5.4bn from $16.7bn over the same period.

The group reported production of 2.8m barrels of oil equivalent a day in the fourth quarter, in line with the same period in the previous year.

Shell has cut costs and spending in recent years and sold $30bn of assets to shrink its debt. The company said it would sell assets worth more than $10bn by the end of 2020.

Shell announced impairments of $2.2bn, having previously flagged that charges “of up to $2.3bn” were expected in the fourth quarter. 

It follows peers — including Chevron, BP, Repsol and Equinor — that have written down billions of dollars’ of US shale assets in recent months. Rising US gas production — much of it a byproduct of the shale oil boom — has pushed prices to multi-decade lows.

Shell had previously said it needed Brent crude prices to be above $65 a barrel in 2019 and $66 a barrel this year to meet its debt reduction targets and maintain the pace of share repurchases. Prices have largely been lower than that since June.

Shell executives said that if energy prices remained weak and refinery and chemicals margins stayed at current levels through this year, cash flows could be hit by $7bn to $10bn between mid-2019 and the end of 2020.

Capital expenditure in 2020 is expected to be at the lower end of the $24bn to $29bn range, in line with last year. Shell reported a fourth-quarter dividend of 47 cents a share.

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